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Cost of emissions to be cushioned

THE Federal Government will soften the political impact of an
emissions trading scheme by ensuring it does not increase the price
of petrol.

In a frank acknowledgement of the political dangers, the
Government will include transport fuels in its scheme but reduce
the excise on petrol to offset any resulting price rise.

The cent-for-cent offset will be contained in the Government's
green paper on emissions trading, which will be released today and
give the first idea of what the scheme, to start in 2010, will look
like.

This month the Government's hand-picked adviser Ross Garnaut
argued against directly compensating for increased petrol prices
when he released his draft report on the domestic effects of global
warming.

While compensation would not destroy the scheme, Professor
Garnaut argued it would blunt the message, which was to use price
signals to encourage people away from high carbon energy.

But, as the Herald reported last month, cabinet had
agreed there should be no net increase in the cost of fuel because
the global oil shock had already caused prices to rise sharply.

As well as the political danger of further increasing petrol
prices in 2010, a scheduled election year, the Government
recognised that petrol was so expensive that it was already sending
a strong price signal to consumers.

The move will shut an avenue of attack for the Opposition, which
has been calling for an excise offset and has been saying the
scheme would add up to 30 cents to a litre of fuel.

The scheme will aim to reduce emissions by setting a limit on
how much pollution industry can produce. Polluters will have to buy
permits to continue producing emissions, raising billions in
revenue for the Government.

The companies will pass on the costs to consumers in the form of
higher prices.

The petrol excise will be continually adjusted to offset the
fluctuating effect caused by the emissions trading scheme. The
Government will also compensate pensioners and others on low
incomes for high energy prices.

A crucial element of the scheme's design - the 2020 target for
reducing emissions, which will dictate the carbon price - will not
be revealed until the end of the year because the Government is
waiting for financial modelling from Treasury and the final report
from Professor Garnaut.

The aluminium, coal and power sectors will be the hardest hit by
the scheme.

Sources said the green paper would contain enough detail so
various industries would know whether they would be affected.

As well as recommending the use of revenue from the scheme to
help consumers and to invest in renewable energy, the green paper
will propose compensation for "trade-exposed" businesses that
primarily compete with foreign companies and would be disadvantaged
by price rises.

It will also help those such as the brown coal power plants in
Victoria's Latrobe Valley and some coal companies in the Hunter
Valley.

The Minister for Climate Change, Penny Wong, stressed the
Government was trying to reshape the economy in a "sensible and
responsible" way.

"We are seeking to move the economy from a high-carbon-polluting
economy to a low-carbon-polluting economy," Senator Wong said.

"All of us are now paying the price for the fact that for many
years we have been putting carbon into the atmosphere. We have to
deal with the costs of that."

1215887631139-smh.com.auhttp://www.smh.com.au/news/global-warming/cost-of-emissions-to-be-cushioned/2008/07/15/1215887631139.htmlsmh.com.auSydney Morning Herald2008-07-16Cost of emissions to be cushionedPhillip Coorey and Stephanie PeatlingEnvironmentEnvironmentGlobalWarming